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Good Thursday Morning. Here’s the rundown of this week’s Sports Business Playbook:

• 📰 This Week’s Topic: Prediction markets, led by market leader Kalshi, have become much more popular the past few years and taken the sports world by storm in 2025. Not everyone is happy about it though, and it brings uncertainty for the sports betting industry.

• 🍸️ Impress Your Friends at Cocktail Party: Want to show off your sports knowledge in a public setting but don’t have time to read the deep dive? Hit the “Impress Your Friends at Cocktail Party” section at the bottom for a CliffsNotes of this week’s topic

• 🤯 “Whoa of the Week”: The 100 most valuable sports franchises in the world

• 💪 Weekly Reminders that Sports are Awesome: The NFL’s schedule release always brings out teams’ creativity, and an iconic duo is coming to a silver screen football field near you.

Hey team,

It’s been seven years this month since the Supreme Court’s landmark decision that overturned the Professional and Amateur Sports Protection Act (PASPA), which had previously banned most legal sports betting at a federal level, and returned the decision on whether to allow sports betting to the states.

Since the repeal of PASPA, traditional online sportsbook operators (OSBs) — think FanDuel or DraftKings — have had to navigate a state-by-state framework for the 38 states that have legalized sports betting.

Each state has its own legislative process, legal requirements (i.e., number of OSBs that can operate in the state), and, most importantly, tax on revenues. This piecemeal approach has meant that the OSBs have poured billions of dollars over the last several years into lobbying and canvasing efforts to 1. get the state to legalize it, and 2. ensure their sportsbook is one of the operations legally allowed to operate there.

This year, though, a new phenomenon living squarely in a legal grey area — the prediction market — has taken the sports betting industry by storm.

The most popular prediction market, Kalshi, is utilizing a “move fast and break things” approach that would make an early 2010’s tech company founder blush, skirting the traditional norms, tactics, and rules on the way to generating nearly $1 billion on platform in just five months of being active in the sports space.

These new markets are raising some eyebrows (and the blood pressure) of state regulators, leagues, and the incumbent sportsbook operators, and the questions of their permanence and potential impacts on the sports betting industry are going to be major issues for years to come.

In this week’s SBP, we’re talking all things prediction markets. You’ll learn:

• How these predictions markets originated

• The legal issues at play (nothing like some good ol’ fashioned questions of federalism in a sports business blog!)

• The potential impacts on the industry through the eyes of the established sportsbooks and leagues

What are these things?

Unlike the state-by-state framework mentioned above, Kalshi and other prediction markets are (currently) regulated at the federal level because they are considered “designated contract markets” (DCMs) that offer services called event contracts, which are approved and regulated under the Commodities Futures Trading Commission (CFTC), a federal agency.

These contracts have been used in a variety of ways since the establishment of the CFTC in 1974, starting initially as futures contracts where investors bet on expected prices of agricultural commodities, before expanding to currency and stock index futures in the last 20th century.

In the last two decades, though, a new vehicle — the “event contract” we think of today — emerged, focused more on the perceived likelihood of particular events winning or losing. This new format could be applied to essentially anything, including interest rates, weather, and politics. As Kalshi notes on its website:

Even with the expansion in scope, these markets were not overly popular and mainly used by niche traders and speculators in specific sectors. But, they gained worldwide popularity last year when major players in the prediction markets correctly predicted the outcome of the 2024 U.S. presidential election.

Names like Polymarket and Kalshi became all the rage on social media, the Biden Administration and Kalshi went to court over the CFTC’s attempts to curb the usage of these prediction markets in politics, and Robinhood, Crypto.com, and other similar sites have also begun to offer this product on their sites (some even using Kalshi’s platform as the provider).

Earlier this year, Kalshi also moved to submit sports-related contracts to CFTC for approval and began to beef up its staff with sports betting veterans.

So, instead of a traditional sports betting operation where there is a house that is setting the odds and hoping for inverse outcomes against the majority of the money, prediction markets are creating winner/loser contracts on sporting events (will the Celtics or Knicks beat the Celtics in Game 6?, will Nikola Jokic score 30 or more points?).

Consumers can take either side of the outcome, and the movement of money in the market dictates how the odds change. The markets then take a fixed rate percentage of the money wagered. It looks similar to other peer-to-peer gaming companies (i.e., Prize Picks) that operate under the idea of “games of skill” where you pick prop bets against each other instead of against the house.

Kalshi has seen success with offerings tied to the Super Bowl and March Madness, and is growing rapidly. According to Front Office Sports, as of mid-May, there was a total of more than $861 million spread across 2.9 million individual sports trades on the platform this year, up by about $159 million over the figures from April 23, which were up by about $49 million over the figures from the prior week.

Comparatively small numbers right now, but the betting industry is watching them closely.

The biggest advantage the event contract companies have over the incumbents is that they’re regulated by a federal entity, which means they can offer contracts on various markets, including sports, in all 50 states.

This unlocks the entire country as an addressable market, including the big three walled gardens in the betting industry — California, Florida, and Texas — that are population epicenters and currently do not allow online sportsbook operations by the traditional players.

And the cherry on top — prediction markets are not having to abide by the specific state-by-state regulations and pay the state taxes on gambling revenue like the OSBs.

Not all is smooth sailing for these prediction markets, though.

The industry pushes back

The fundamental concept of event contracts has long been questioned.

Someone much smarter than me can write a full deep dive unpacking all of the arguments, but the TL;DR is critics believe events contracts are games of chance, not investments — i.e., gambling — that serve no economic purpose/benefit, a core principle of their legality.

On the other hand, proponents say these are investment vehicles where savvy market participants can hedge and mitigate everyday risks.

The grey area here is who dictates what economic purpose/benefit is, and what is actually investing vs. speculating/betting?

Regardless of what side you personally fall on, one thing is clear: the states are pissed about these sports events contracts.

As of writing this, regulators in at least six states — Maryland, Illinois, Montana, Nevada, New Jersey and Ohio — have sent Kalshi cease-and-desist letters for engaging in betting operations without a license. Kalshi has fired back, though, filing countersuits in New Jersey, Nevada, and Maryland to secure temporary injunctions to continue operations, and they have prevailed in the first two (Maryland is pending).

These legal wins are not a slam dunk, though. The rulings in Kalshi’s favor are mainly based on Kalshi’s exclusive jurisdiction to be regulated under the federal CFTC superseding state rules, not the underlying concept of the contracts themselves and whether Kalshi’s prediction markets are workarounds to take bets on games without securing a sportsbook license.

Thus, regulators and lobbyists have turned to the CFTC for guidance and potentially a ruling on this rapidly expanding business.

The problem? The CFTC has buried its head in the sand this year.

While the CFTC had a long-scheduled a roundtable with industry experts to evaluate the arguments around both election and sports event contracts set for end of April, the meeting was suddenly cancelled a few days before, with no real warning or explanation.

Then, last week, the CFTC filed a motion for voluntary dismissal of the agency’s case against Kalshi on election event contracts dating back to 2023, essentially freeing them of any remaining litigation and formal conversation about their activities.

Why the sudden disinterest?

There may be legal reasoning here and there has been a lot of turnover at the CFTC with both leadership and rank-and-file employees, but it’s an understatement to say conflicts of interest abound at the CFTC under this current administration.

Donald Trump Jr. is a Kalshi board member, and Brian Quintenz, the incoming CFTC chairman who served as a commissioner in President Trump’s first term and was a vocal supporter of prediction markets then, is also on the board. So, it’s certainly a convenient time for these two major items to break Kalshi’s way.

Regardless of underlying motives, if the CFTC continues down this path, it effectively becomes a national gambling regulator in many people’s eyes.

What it means for the industry

It’s safe to say Kalshi has made a ton of enemies in the sports space. But, they’re also paying close attention and trying to game out where this goes out next.

The Sportsbooks

As mentioned before, online sportsbooks have invested billions of dollars in lobbying and marketing across the 30+ states that have legalized betting to get themselves live and revenue-generating, and they are often paying a significant tax on their revenues on a state by state basis.

Kalshi upends this and unlocks the big three — California, Texas, and Florida — that are not active for these OSB’s. And, to twist the knife further, Kalshi is not having to navigate the state-by-state patchwork of taxes and laws that often keeps online sports betting margins razor thin.

The big question for the major players like FanDuel and DraftKings: if you can’t beat ‘em, do you join ‘em?

These 800-pound gorillas often enjoy second-mover advantage, re-creating good ideas that are getting traction from smaller competitors and using their scale/market leadership to drive consumers to it (see: FanDuel’s new pick ‘em games that mirror Prize Picks).

Prediction markets seem like another obvious opportunity to introduce impactful functionality into their offerings, but doing so does not come without its risks.

First, the move could alienate existing state partners that the OSBs have built strong working relationships with. The states expect considerable tax dollars from the operators, and the OSBs do need to stay in the states’ good graces because, in many cases, the states control a fixed number of licenses for betting organizations that are renewable (or not) after a set period of time.

Second, entering this market also could muddy the waters with the states that have not yet legalized online betting, namely the Big Three. If the major players are seen as skirting the rules, it could further exacerbate relations with regulators and the Native American tribes that hold a lot of sway in the casino space, jeopardizing their long-term future in the states.

The Leagues

Three of the big four pro sports leagues — the NFL, NBA, and MLB — filed letters with the CFTC back in February, all with very similar concerns around the lack of a legal framework and regulation on a rapidly expanding area that could jeopardize the integrity of their games.

There are likely two things at play here.

First, there is probably a lot of frustration, as the leagues spent nearly a decade working state-by-state with sportsbook partners to put together a regulatory framework. Now, in less than five months, there is now a competitor operating outside of these rules at a federal level and threatening the current establishment.

The leagues have always wanted a federal framework vs. the state-by-state patchwork current state because of its simplicity and supremacy. But, they want serious comprehensive legislation and a designated body to oversee all of it, not an understaffed agency looking to deregulate a new, seemingly unknown new form of betting.

This uncertainty is a good segue to my second point, which is that the leagues are likely very wary of new, little regulated betting mechanisms that are hard to track and could create integrity questions.

You wouldn’t know it by looking at this year’s NBA lottery (I said what I said!), but the unspoken foundation sports is built on is that the outcome is not predetermined, and anything can happen in a game.

If there is even the appearance of a thumb on the scale, it erodes the trust of fans and would be catastrophic for the industry as a whole.

Because of this, the leagues fight like hell to preserve the integrity of their games, and it’s why they come down so hard on players and staff who are involved in anything that could potentially impact that.

There have certainly been some black eyes — i.e., Johntay Porter — and a lot of irony — players getting suspended more games for gambling than domestic abuse while leagues continue to enable non-stop, sometimes predatory sportsbook advertising to fans — in the legalized sports betting era, but the leagues have mostly been able to keep things above board.

Prediction markets introduce a whole new set of variables in this area that the leagues can’t control and don’t have partners providing oversight on, which makes them uneasy.

As noted in SBJ, both the MLB and NBA voiced strikingly similar concerns to the CFTC this year:

Let’s be clear, though: the leagues don’t care about the ethics of event contracts; it’s the current risk they bring.

We talked about this in the very first issue of SBP, but the leagues will stand on the perceived moral high ground until it’s clear both the law and court of public opinion are moving in their direction and there is a path forward for them to safely engage.

If the winds change on prediction markets and there is an opportunity to unlock the biggest states in the country in an effective manner, it’s not impossible to imagine an official Robinhood prediction market dasherboard or Kalshi advertising spot coming to a sports event near you.

🍸️ Impress Your Friends at a Cocktail Party

Want to show off your sports knowledge in a public setting but don’t have time to read the deep dive? This section is the CliffsNotes of this week’s topic

Opener: It’s been seven years since states could legalize sports betting, annd nearly 40 states have done so, establishing a working framework that leagues and online sportsbooks (OSBs) operate on.

A new challenger — the prediction market — that came from commodities trading and letting users bet on political outcomes is threatening this current establishment, and the most popular app, Kalshi, is making a lot of noise.

Shot: Unlike the state-by-state framework OSBs have to use, Kalshi and other prediction markets are (currently) regulated at the federal level by the Commodities Futures Trading Commission (CFTC) because they offer what’s called an event contract.

Instead of “the house” determining the odds of an outcome, prediction markets offer contracts on the perceived likelihood of particular events winning or losing, and consumers can take either side (essentially yes or no). The amount of liquidity in the market on either side determines the odds. As of mid-May, more than $861 million has been wagered across 2.9 million individual sports trades on Kalshi this year, up by about $159 million over the figures from April 23, which were up by about $49 million over the figures from the prior week.

Shot: The biggest advantage the prediction market companies have over the incumbents is that they’re regulated by a federal entity, which means they can offer contracts on various markets, including sports, in all 50 states.

This unlocks the entire country as an addressable market, including the big three walled gardens in the betting industry — California, Florida, and Texas — that are population epicenters and currently do not allow online sportsbook operations by the traditional players. And the cherry on top — prediction markets are not having to abide by the specific state-by-state regulations and pay the state taxes on gambling revenue like the OSBs.

Shot: As you can imagine, the states aren’t happy about this, and six have sent cease-and-desist letters to Kalshi. Kalshi has returned fire though, filing suit (and winning) in two states because the federal jurisdiction it operates under with the CFTC supersedes the states’ regulations.

The CFTC under the new administration has seemingly decided it doesn’t want to dig into the issue, cancelling industry roundtables and dropping an existing case against Kalshi from 2023 on its politics contracts. There are some glaring conflicts of interest here given Donald Trump Jr. and the incoming CFTC chairman are both Kalshi board members, but the CFTC is going to let prediction markets operate somewhat freely.

Chaser: This major implications for the other two interested parties: the incumbent sportsbooks and the leagues. Both are not happy that this competitor has emerged and is not playing by the rules, but both are also monitoring with intense interest and figuring out their next moves.

The OSBs could launch their own prediction product and tap into the larger market, but they’d run the risk of alienating existing state partners and jeopardizing future states (especially California, Florida, and Texas). The leagues are concerned this upends the existing model that they’ve made so much money off of, and it also brings about new, unchecked risk for monitoring potential player and staff gambling issues that could threaten the integrity of their sport. All of that being said, if they see the winds change in both the actual courts and court of public opinion, you could see a scenario where they start to lean into the subsector.

🤯 “Whoa” of the Week

Insane, mind-blowing things constantly happen in the sports business world. Here was my favorite of the past week.

1. The 100 most valuable sports franchises in the world.

Interestingly, two of these — the Seahawks (#28) and Trailblazers (#73) — are set to come on the market as a part of the late Paul Allen’s estate plan. Keep your eye on where these two teams land given the latest deals in both leagues were above $6 billion.

💪 Weekly Reminder that Sports are Awesome

This newsletter is, of course, mostly centered on the business side of sports and the things that happen off the field. That being said, it’s important to remember why we fell in love with sports in the first place, though.

This section is meant to highlight the amazing things that happened in sports this week that serve as that reminder.

1. The NFL schedule release is here, and per usual, the teams went all out to go viral.

All teams’ videos are here, and I selected three of my favorites below (the Chargers’ video needs to be watched a few times to pick up all of the subtle jabs at other teams).

2. An incredible duo to play two of the most iconic figures in NFL history

Thanks for reading! Let me know what feedback you have.

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Until next time, sports fans!

-Alex